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This year get your taxes filed on time!

Theresa Morley — Tue, 05 Mar 2013 15:04:54 +0000

Spring is the time to clean up your yard, your house and your paperwork. Filing your taxes is just one of those things we all need to do and there is no better time like spring.

Tax tip: Make sure you file your tax return on time even if you cannot pay the taxes owing. CRA will levy a punitive penalty for late filing and this penalty attracts daily interest charges

If you are a sole proprietor, organize your paperwork by month and by expense type; add up the total for each expense for the year making sure to separate out the HST paid. Create a spreadsheet (using Excel or pencil and paper)of your home expenses – categories down the side (heat, hydro, mortgage interest,property taxes, insurance, R&M,water, telephone) and months along the top. Total the columns and the rows. Create a spreadsheet of personal deductions such as medical(show information for each medical practititioner and for each family member). Add up all your invoices for the year making sure to separate out the HST collected. Bring this information along with your slips to your accountant to prepare your tax return.

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Know Your Numbers!

Theresa Morley — Mon, 25 Feb 2013 14:29:35 +0000

Know your numbers! As a business owner, you probably hear this all the time. But what does it mean?

My parents each ran a business and they definitely knew their numbers. My father ran his business off the back of a cigarette box. He watched: Sales, COGS and gross margin, and, he knew his overheads were 10% of sales and therefore his markup needed to be ½ of COGS.

His business ratios did not vary much and were:
Sales 100%
COGS 66.67%
Gross Margin 33.33%
Overheads 10%
Net profit 23%
While this worked for my Dad 50 years ago, they do not work today yet, many businesses are still working with these old static ratios.

Let us look at overheads first. Today overheads have more components than 50 years ago. Consider that we now have internet expenses, a significant portion of our payroll expenses are mandatory company contributions to EI, CPP, EHT and WSIB, vehicle expenses have skyrocketed, we have mandatory safety and training requirements and it now requires a great deal more advertising to be heard in the roar of advertisements out there. Overheads are not 10% of sales anymore! Your gross margin needs to be high enough to cover overheads and give you a profit.

What about direct costs or cost of goods sold? Direct costs are your first contributor to your gross margin – anything your do to decrease direct costs will increase your gross margin. Today our freight and delivery charges include customs and excise, foreign exchange differences and prices change constantly. Using subcontractors to complete an order instead of employees changes your ratios. Out of control employee overtime can wreak havoc with your gross margin. Direct costs/COGS is a critical number that should be watched like a hawk every month. A small change that goes unnoticed can have a major impact on your gross margin.

Analyzing sales is a whole science all by itself. Sales are your second contributor to your gross margin – small changes in pricing can have a major effect on your gross margin. Consider your mix of clients, what they buy from you, how they buy from you and their demands on your services. Why do these different customers have such an impact? Well, firstly, your offering may include products and services, different services and many different products. These options may give you varying gross profit percentages. Your clients may give you large orders or small orders; may be demanding or require very little employee time; may negotiate terms or accept your price. All of these variables impact your gross margin.

From the discussion above, the most important number to know in your business is the gross margin. It is particularly important to determine what your gross margin must be to breakeven. The gross margin is affected by the mix of products and services sold, the mix of customers – big and small, the prices you charge. It is affected by the direct costs of servicing your customers and how you allocate and pay for those services. Above all, your gross margin determines if you breakeven or make a profit.

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Cashflow – the #1issue for business owners

Theresa Morley — Mon, 25 Feb 2013 02:12:31 +0000

According to KPMG Annual Working Capital Survey, cash is a top priority with 83% of business owners surveyed. So why is cash flow such a big issue?

Cash flow is much more than watching your bank balance. It’s about:
• Timing of activities like invoicing or paying bills;
• Using technology to speed up the flow of money into your business.
• Strategising when to make large purchases – equipment or bulk material purchases.
• Negotiating terms with suppliers, customers and the bank.
• Managing resources such employees time, equipment usage and materials
• Knowing your numbers and key financial indicators.

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Personal Tax Tips for 2012

Theresa Morley — Wed, 28 Nov 2012 20:15:36 +0000

1. File your taxes on time to avoid late filing penalties
2. Keep track of all your sources of income and make sure you report them
3. Sign up for My Account on the CRA website
4. Max out your TFSA before your RRSP
5. Maintain detailed records of all your buys and sells of unregistered investment

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Surprisingly Few Business Owners Pay Attention to Profits!

Theresa Morley — Sat, 24 Mar 2012 20:39:56 +0000

Profits – the bottom line for the year is one of the key numbers that bankers and investors look at. If you watch Dragons Den, it is a question frequently asked of the candidates. Yet surprisingly few of the candidates can answer this question. Why is this?

In the book “The Art of Profitability” by Adrian Slywotzky he makes the point that “to succeed in business, the business owner needs to have a genuine interest in creating profits.”

As a business owner, what are you doing to make sure you are creating profits?

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2012 Tax tips – taxable benefits

Theresa Morley — Tue, 06 Mar 2012 14:35:54 +0000

Every employee knows that taxable benefits must be included in income. But what exactly are taxable benefits?
These are payments that you receive as a result of your employment. But determining whether a payment to an employee is a taxable benefits or not requires a review of the circumstances and reasons for the payments.
Examples include:
Tips and gratuties – these must be reported even though they may not be included on a T4
Gift certificates received from an employer
Payments of flex credits from a flexible employee benefits program
An employer provided computer and internet service that is also used for personal reasons

Shareholders of corporations who are also the owner manager may find that many of the perks they receive from their corporation are in fact taxable benefits.
For example:
Use of a company owned vehicle – this is called a standby charge. The calcualtion of a standby charge is stipulated by CRA
Purchase of a company owned vehicle or asset at less than fair market value(FMV). The benefit is the difference between the FMV and the price paid.
The cost of a gym membership
Travel expenses for a spouse who accompanies them on a business trip
Purchase of cell phone services on a family plan

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How has the recession changed your business?

Theresa Morley — Sun, 19 Feb 2012 03:26:55 +0000

There has been a lot of talk about the new normal which has resulted in a new way of doing buisness for many small business owners.
What are you doing differently in your business today compared to 2009?

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How does Revenue Canada determine if I’m an employee or an independent contractor when I work as a subcontractor?

Theresa Morley — Mon, 23 Jan 2012 00:58:13 +0000

The short answer is “It’s impossible to know for sure!” because there is no definitive law or document that answers the question.
A slightly longer answer is “If you’re talking about the Canada Pension Plan and Employment Insurance, it’s easy!”
For all practical purposes, if you are incorporated, you’re treated as an independent contractor. If you are operating as an unincorporated sole proprietor, you’re an employee.
Don’t fight it, there’s no way around it, it’s been that way for many years. Don’t pay anyone to tell you different. About CPP and EI, that is.
Income tax is a whole other issue, and a whole other department within Revenue Canada. Different people, different rules, different implications.
The following list of 14 questions has been adapted from “Whose Business Is It? Employees Versus Independent Contractors” by Joanne Magee in the Canadian Tax Journal, 1997, Volume 45, Number 3.
In each case the right answer is “Yes”. The more times you say “Yes” the more likely it is that the courts and Revenue Canada will regard you as an independent contractor. And that’s a good thing, unless you like lower deductions and higher taxes.
1. Do you control the When, Where and How of your work, as opposed to being closely supervised by the payer?
2. Do you have other business activities that are integrated with the work you do for the payer?
3. Can you work for other companies without getting permission from the payer?
4. Can you hire and pay other people to do the work without getting permission from the payer?
5. Do you assume any risks or supply any funds as part of the work?
6. Do you assume responsibility for any losses, expenses or damages that you cause?
7. Is there a foreseeable end to the work, as opposed to a continuing relationship?
8. Do you pay for the use of or provide your own equipment and supplies?
9. Do you use a separate office that isn’t on the payer’s premises?
10. Are you ineligible for benefits normally provided to employees of the payer, such as pension, insurance, stock options, vacation pay and holiday pay?
11. Would the payer survive without your services, as opposed to your work being an integral part of the business?
12. Do you issue invoices to the payer and receive cheques in payment, but not receive T4 slips?
13. Do you calculate your fee the same way as other independent computer contractors?
14. If a contract exists does it support an independent contractor relationship?
You might protest, “I’ve registered my company name, I’ve had business cards printed up, I’ve paid for advertising, I’ve got a separate phone line!” None of that matters, it seems, just the factors described in the 14 questions.
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Although Some Things Change Rapidly In Business, Other Things Never Change.

Theresa Morley — Fri, 23 Dec 2011 21:28:18 +0000

Guess when this was written?

• The 1st time a man looks at an advertisement, he does not see it.
• The 2nd time, he does not notice it.
• The 3rd time, he is conscious of its existence.
• The 4th time, he faintly remembers having seen it before.
• The 5th time, he reads it.
• The 6th time, he turns up his nose at it.
• The 7th time, he reads it through and says “Oh Brother!”
• The 8th time, he says “Here’s that confounded thing again!”
• The 9th time, he wonders if it amounts to anything.
• The 10th time, he asks his neighbour if he has tried it.
• The 11th time, he wonders how the advertisers makes it pay.
• The 12th time, he thinks it must be a good thing.
• The 13th time, he thinks perhaps it might be worth something.
• The 14th time, he remembers wanting such a thing a long time ago.
• The 15th time, he is tantalized because he cannot afford to buy it
• The 16th time, he thinks he will buy it some day.
• The 17th time, he makes a memorandum to buy it.
• The 18th time, he swears at his poverty.
• The 19th time, he counts his money carefully.
• The 20th time he sees the advertisement, he buys what it is offering.
Thomas Smith of London, England wrote this in 1885. I believe it is just as valid today as it was then.

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Biggest Pricing Mistakes by Construction Companies – No 1 of 10

Theresa Morley — Mon, 19 Dec 2011 01:58:18 +0000

With a significant client base of construction companies undertaking commercial and residential projects, we come across the following most common errors that hurt the profits of the business as well as the egos and reputations of these companies with their customers.

Missing an item of work.

We find that missing an item of work is most noticeable when clients are providing their customer with a lump sum bid, and the contractor, having put the bid in writing, is obligated to do the work even if part of it is omitted in calculating the bid.

Our best clients have three tricks to avoid this mistake. One is they have their bookkeeper develop checklists (bookkeepers love making lists) of things they bid on which they can use as a memory jogger, secondly they take lots of notes when talking to prospective clients as well as photos, draw sketches and even use tape recorders to make sure they have all the key points and thirdly they review the draft bid with clients to make sure nothing is missing before finalizing the price.

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